MSCI de­fers de­ci­sion on in­clu­sion of A shares in global bench­mark

China Daily (Canada) - - FRONT PAGE - By XIE YU in Hong Kong xieyu@chi­nadaily.com.cn

Global in­dex com­pil­erMSCI Inc said on Wed­nes­day that it had de­layed in­clud­ing the Chi­nese A shares in its bench­mark in­dex as there were still some is­sues over mar­ket ac­cess, but said that it was work­ing with the na­tion’s cap­i­tal mar­ket reg­u­la­tor to ad­dress the is­sue.

MSCI and the China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion will form a work­ing group to tackle the re­main­ing ac­ces­si­bil­ity is­sues and the in­dex provider will in­clude the A shares in the MSCI Emerg­ing Mar­kets In­dex as soon as the is­sues are re­solved, which may hap­pen “out­side the regular sched­ule” of its an­nual mar­ket clas­si­fi­ca­tion re­view, it said in a state­ment onWed­nes­day.

The yuan-de­nom­i­nated Ashare mar­ket, the sec­ond-largest eq­uity mar­ket by cap­i­tal­iza­tion (fol­low­ing the United States mar­ket) and the most ac­tively traded cash eq­uity mar­ket glob­ally, had missed its first op­por­tu­nity in 2014 to join the MSCI Emerg­ing Mar­ket In­dex, af­ter it was picked for an an­nual re­view. The in­dex is tracked by roughly $1.7 tril­lion of funds glob­ally, ac­cord­ing to Bloomberg data.

The de­ci­sions fol­low­ing the two re­views more or less fol­lowed sim­i­lar pat­terns. Con­cerns still ex­ist over mar­ket trad­abil­ity, re­fer­ring to spe­cific is­sues in­clud­ing quota al­lo­ca­tion process, cap­i­tal mo­bil­ity re­stric­tions and ben­e­fi­cial own­er­ship of in­vest­ments, ac­cord­ing to the press re­lease.

How­ever, an­a­lysts said the word­ing of the MSCI state­ment in­di­cated global in­vestors have rec­og­nized the sub­stan­tial progress re­gard­ing China’s eq­uity mar­ket open­ing-up. Given that some of them even have made at­tempts to em­brace the mar­ket, the in­clu­sion may hap­pen as early as the fourth quar­ter, mar­ket sources said.

“Our ex­pec­ta­tion is that the Shen­zhen-Hong Kong Stock Connect scheme could be un­veiled in the near fu­ture and could be up and run­ning in the fourth quar­ter. If our ex­pec­ta­tions pre­vail, a key pre­req­ui­site for A-share in­clu­sion to global in­dexes will be ful­filled, and could open a spe­cial re­viewby the MSCI,” Gold­man Sachs Group Inc strate­gist Kinger Lau and his team wrote in a note onWed­nes­day.

Steve Yang, an A-share strate­gist with Swiss fi­nan­cial ser­vices firm UBS Se­cu­ri­ties LLC, said: “Although A shares have yet to meet MSCI’s and FTSE’s emerg­ing mar­kets clas­si­fi­ca­tion stan­dards, an in­creas­ing num­ber of over­seas funds have con­sid­ered in­clud­ing A shares in their port­fo­lios.”

MSCI’s ri­val FTSE an­nounced the cre­ation of two tran­si­tional emerg­ing mar­ket in­dexes that in­cluded A shares in late May, which aims to fa­cil­i­tate the po­ten­tial in­clu­sion ofAshares toFTSE’s stan­dard global in­dexes.

The bench­mark Shang­hai Com­pos­ite In­dex slid 0.15 per­cent to 5,106.04 points on Wed­nes­day af­ter the news.

“Blue chips in sec­tors in­clud­ing fi­nance, in­for­ma­tion tech­nol­ogy, and en­ergy are the di­rect ben­e­fi­cia­ries, based on the ex­pe­ri­ences of other mar­kets like South Korea. But the im­pact on liq­uid­ity will be limited in the short term, whether or not the A shares are in­cluded in the MSCI bench­mark,” said Zhu Zhenxin, an an­a­lyst with­Min­sheng Se­cu­ri­ties Co Ltd.

The ini­tial in­clu­sion will see A shares tak­ing up less than 1 per­cent of the Emerg­ing Mar­ket In­dex, and may in­tro­duce about $2 bil­lion funds, be­low 1 per­cent of the daily turnover on China’s eq­uity mar­ket nowa­days.

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